2. Types of Business Ownership
Chapter 7
Types of Business Ownership
Sole Proprietorships and Partnerships
7.1
Corporations
7.2

3. Discuss the sole proprietorship legal form.
7.1
Discuss the sole proprietorship legal form.
Explain the partnership legal form.
Section 7.1 Sole Proprietorships and Partnerships

4. 7.1
Entrepreneurs need to understand the advantages and disadvantages of various forms of business ownership so they can choose the most appropriate form for their business.
Section 7.1 Sole Proprietorships and Partnerships

5. sole proprietorship liability protection unlimited liability
7.1
sole proprietorship
liability protection
unlimited liability
partnership
general partner
limited partner
Section 7.1 Sole Proprietorships and Partnerships

6. Sole Proprietorship
The easiest and most popular form of business ownership is the sole proprietorship.
sole proprietorship a business that is owned and operated by one person
Section 7.1 Sole Proprietorships and Partnerships

7. Sole Proprietorship The owner of a sole proprietorship:
receives the profits
incurs any losses
is liable for the debts of the business
Section 7.1 Sole Proprietorships and Partnerships

8. Sole Proprietorship
In a sole proprietorship the owner must decide how much liability protection he or she needs.
liability protection insurance against the debts and actions of a business
Section 7.1 Sole Proprietorships and Partnerships

9. Sole Proprietorship Advantages
Sole proprietorship is easy and inexpensive to create.
The owner has complete authority over all business activities.
It is the least regulated form of business ownership.
The business pays no taxes; income is taxed at personal rate of owner.
Section 7.1 Sole Proprietorships and Partnerships 9

10. Sole Proprietorship Disadvantages The owner has unlimited liability.
Raising capital is more difficult.
The business is totally reliant on skills and abilities of owner.
The death of owner dissolves the business unless there is a will to the contrary.
Section 7.1 Sole Proprietorships and Partnerships 10

11. Disadvantages
The biggest disadvantage of a sole proprietorship is financial.
In this form of business ownership, the owner has unlimited liability.
unlimited liability full responsibility for all debts and actions of a business
Section 7.1 Sole Proprietorships and Partnerships

12. Partnerships
A partnership draws on skills, knowledge, and financial resources or more than one person.
partnership an unincorporated business with two or more owners who share the decisions, assets, liabilities, and profits
Section 7.1 Sole Proprietorships and Partnerships

13. General Versus Limited Partners
The law requires that all partnerships have at least one general partner.
general partner a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business
A partnership may be set up so that all of the partners are general partners.
Section 7.1 Sole Proprietorships and Partnerships

14. General Versus Limited Partners
Some partnerships include a limited partner.
limited partner a partner in a business whose liability is limited to his or her investment; a limited partner cannot be actively involved in managing the business
Section 7.1 Sole Proprietorships and Partnerships

15. Partnerships Advantages Partnerships are inexpensive to create.
General partners have complete control.
Partners can share ideas.
Partners can share ideas and secure investment capital more easily and in greater amounts.
Section 7.1 Sole Proprietorships and Partnerships 15

16. Partnerships Disadvantages
It is difficult to dissolve one partner’s interest without dissolving the partnership.
There may be personality conflicts.
Partners can be held liable for each others’ actions.
Section 7.1 Sole Proprietorships and Partnerships 16

17. Discuss the sole proprietorship legal form.
7.1
Discuss the sole proprietorship legal form.
Sole proprietorship is the easiest and most popular form of business to create. The owner receives the profits, incurs any losses, and is liable for the debts of the business.
Quick Check Answers
physical needs, psychological needs, and social needs
There were fabric shortages, which caused shorter hemlines and the increased use of rayon. With less access to European designers, American designers became more prominent. Austere fashions reflected the wartime atmosphere.
Professional women wore “the power look” of suits and blazers. Business-casual style developed for men in the workplace. Synthetic, stretchable fabric was used for athletic wear.
Section 7.1 Sole Proprietorships and Partnerships

18. Explain the partnership legal form.
7.1
Explain the partnership legal form.
A partnership is an unincorporated business with two or more owners. The partners share the decisions, assets, liabilities, and profits. The partnership can draw on the skills, knowledge, and financial resources of more than one person, which is an advantage when seeking loans.
Section 7.1 Sole Proprietorships and Partnerships

19. Discuss the advantages and disadvantages of a C-corporation
7.2
Explain how the corporate form gives owners more protection from liability.
Discuss the advantages and disadvantages of a C-corporation
Describe a Subchapter S corporation.
Compare nonprofit corporations to C-corporations.
Explain the limited liability company.
Discuss how to decide which legal form to use.
Section 7.2 Corporations

20. 7.2
In a corporation, the owners of the business are protected from liability for the actions of the company.
Section 7.2 Corporations

21. Subchapter S corporation limited liability company (LLC)
7.2
corporation
C-corporation
shareholders
limited liability
Subchapter S corporation
limited liability company (LLC)
nonprofit corporation
Section 7.2 Corporations

22. What Is a Corporation? There are three types of corporations:
corporation a business that is registered by a state and operates apart from its owners; it issues shares of stock and lives on after the owners have sold their interest or passed away
C-corporation
Subchapter S corporation
nonprofit corporation
Section 7.2 Corporations

23. C-Corporation A C-corporation is the most common corporate form.
C-corporation an entity that pays taxes on earnings; its shareholders pay taxes as well
Section 7.2 Corporations

24. C-Corporation
In smaller corporations, the founders generally are the major shareholders.
shareholders an owner of shares of stock in a corporation
Section 7.2 Corporations

25. ability to raise investment money
C-Corporation
Advantages
status
limited liability
ability to raise investment money
perpetual existence
employee benefits
tax advantages
Section 7.2 Corporations 25

26. Advantages
Corporate shareholders have limited liability, but some banks require officers to personally guarantee the debts of the company.
limited liability partial responsibility of a corporate shareholder; he or she is responsible only up to the amount of the individual investment
Section 7.2 Corporations

27. C-Corporation Disadvantages expensive to set up
income is more heavily taxed
subject to double taxation on income
pays taxes on profits
stockholders pay taxes on dividends
Section 7.2 Corporations 27

28. Subchapter S Corporation
An entrepreneur can avoid the double taxation of a C-corporation by setting up a Subchapter S corporation.
subchapter S corporation a corporation that is taxed like a partnership; profits are taxed only once at the shareholder’s personal tax rate
Section 7.2 Corporations

29. Nonprofit Corporation
A nonprofit corporation must fall within one of four categories:
nonprofit corporation a legal entity that makes money for reasons other than the owner’s profit; it can make a profit, but the profit must remain within the company
religion
charity
public benefit
mutual benefit
Section 7.2 Corporations

30. Limited Liability Company
There are many benefits to forming a limited liability company (LLC)
limited liability company (LLC) a company whose owners and managers have limited liability and some tax benefits, but avoids some restrictions associated with Subchapter S corporations
Section 7.2 Corporations

31. Making the Decision
Before deciding on a legal form, ask yourself key questions about:
your skills
capital
expenses
willingness to assume liability
level of control wanted
length of time you expect to own the business
Section 7.2 Corporations

32. 7.2
Explain how the corporate form gives owners more protection from liability.
A corporation offers limited liability. In other words, shareholders are liable only up to the amount of their individual investments.
Section 7.2 Corporations

33. Discuss the advantages and disadvantages of a C-corporation.
7.2
Discuss the advantages and disadvantages of a C-corporation.
Advantages: A corporation has a more professional appearance, its shareholders are liable only up to the amount of their individual investment, it can raise money by issuing shares of stock, it has perpetual existence, it is structured to accommodate employee benefits, and it has tax advantages. Disadvantages: A corporation is expensive to set up and its income is more heavily taxed.
Section 7.2 Corporations

34. Describe a Subchapter S corporation.
7.2
Describe a Subchapter S corporation.
The Subchapter S corporation is taxed like a partnership; profits are taxed only once at the shareholder’s personal tax rate. Therefore, the Subchapter S corporation is not a tax-paying entity. Generally, it can have no more than 75 stockholders who must be U.S. citizens. It can have only one class of stock.
Section 7.2 Corporations

35. Compare nonprofit corporations to C- corporations.
7.2
Compare nonprofit corporations to C- corporations.
Nonprofit corporations can make a profit, but the profit must remain within the companies and not be distributed to shareholders. Any type of business can be a corporation, but a nonprofit must be formed for religious or for charitable purposes, public benefit, or religious purposes. C-corporations are created to make a profit for its owners, or shareholders.
Section 7.2 Corporations

36. Explain the limited liability company.
7.2
Explain the limited liability company.
The limited liability company protects owners with the limited liability of a corporation. That is, the company’s owners are not liable for its debts. It also provides pass-through tax advantages; shareholders are taxed only once. There are no limitations on the number of members or on their status.
Section 7.2 Corporations

37. Discuss how to decide which legal form to use.
7.2
Discuss how to decide which legal form to use.
You should consider your skills, capital, living expenses, willingness to assume personal liability for any claims against the business, control desired. Also, ask yourself: do you expect to have initial losses, or will the business be profitable from the beginning? Do you expect to sell the business some day?
Section 7.2 Corporations

38. Entry Level E-Commerce
Big companies can afford to spend millions of dollars developing their e-commerce sites.
However, there are ways that allow small businesses to ease into e-commerce at a slower, less-expensive pace.
Section 7.2 Corporations 38

39. Tech Terms hosted shopping cart
a business that offers e-commerce services for a monthly fee; users can upload product information and have their business launched instantly
online auction
an auction that takes place on a Web site such as eBay
Section 7.2 Corporations 39

40. Tech Terms open-source software
software applications that are distributed free of charge; a number of e-commerce shopping cart programs are available as open-source software
virtual store
an online storefront that allows entrepreneurs to sell products they do not own.
Section 7.2 Corporations 40

41. End of